Potentially malignant lesions, commonly referred to as dysplasia, are associated with malignant transformation by mechanisms that remain unclear. We recently reported that increased Wnt secretion promotes the nuclear accumulation of beta-catenin and expression of target genes in oral dysplasia. However, the mechanisms accounting for nuclear re-localization of beta-catenin in oral dysplasia remain unclear. In this study, we show that endosomal sequestration of the beta-catenin destruction complex allows nuclear accumulation of beta-catenin in oral dysplasia, and that these events depended on the endocytic protein Rab5. Tissue immunofluorescence analysis showed aberrant accumulation of enlarged early endosomes in oral dysplasia biopsies, when compared with healthy oral mucosa. These observations were confirmed in cell culture models, by comparing dysplastic oral keratinocytes (DOK) and non-dysplastic oral keratinocytes (OKF6). Intriguingly, DOK depicted higher levels of active Rab5, a critical regulator of early endosomes, when compared with OKF6. Increased Rab5 activity in DOK was necessary for nuclear localization of beta-catenin and Tcf/Lef-dependent transcription, as shown by expression of dominant negative and constitutively active mutants of Rab5, along with immunofluorescence, subcellular fractionation, transcription, and protease protection assays. Mechanistically, elevated Rab5 activity in DOK accounted for endosomal sequestration of components of the destruction complex, including GSK3 beta, Axin, and adenomatous polyposis coli (APC), as observed in Rab5 dominant negative experiments. In agreement with these in vitro observations, tissue immunofluorescence analysis showed increased co-localization of GSK3 beta, APC, and Axin, with early endosome antigen 1- and Rab5-positive early endosomes in clinical samples of oral dysplasia. Collectively, these data indicate that increased Rab5 activity and endosomal sequestration of the beta-catenin destruction complex leads to stabilization and nuclear accumulation of beta-catenin in oral dysplasia.